Photo-Me International (PHTM)

81.2p

Gain to date: 14.3%

Instant service equipment company Photo-Me International (PHTM) has continued to deliver strong business momentum which have propelled the shares higher since we said to buy on 16 June 2022.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

A very confident first-half trading update saw the company reiterate full-year guidance of at least 20% revenue growth and pre-tax profit of between £47 million and £50 million. In addition, the company announced a new progressive dividend policy and a special dividend.

Going forward the company intends to pay out at least 50% of annual profits in dividends and approximately £24.57 million as a special dividend, equivalent to 6.5p per share on 1 September 2022.

Broker Canaccord Genuity has materially upgraded its dividend forecast and highlighted that the new policy represents a normalised dividend yield (excluding the special payout) for fiscal 2022 of 7.5%.

Canaccord argues this is very attractive considering the stable cash flow characteristics of the group and the concession-like nature of the business.

For the first-half the company grew revenues by 22% year-on-year while EBITDA (earnings before interest, taxes, depreciation, and amortisation) jumped 40% to £40.2 million.

The company has ambitions to grow EBITDA to £100 million by the end of the 2023 fiscal year. The company ended the half with net cash of £43.2 million, up from £16.9 million.

Chief financial officer Stephane Gibon told Shares that the company’s growth was focused on increasing the density of its operations (adding more machines per head of population), opening new territories, and developing new technologies.

In the medium term the company expects to achieve more balance across the different technologies with photo booths representing around half of revenues, washing machines contributing around a third and the nascent food vending machine business contributing the rest.

In October the company plans to change its name to ME Group to better reflect an increasingly diversified concessions group. In October 2022 the company will celebrate its 60th anniversary on the London Stock Exchange.

WHAT SHOULD INVESTORS DO NEXT?

The business continues to perform strongly while the shares look too cheap relative to the potential growth and yield. Keep buying.

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